Bitcoin ETFs: What does the Future Hold?

Efforts to implement an exchange traded fund (ETF) for Bitcoin have been underway for several years, and the nine most recent proposals, put before the SEC by ProShares, Direxion and GraniteShares, have been rejected as of this week. Why did the SEC turn these proposals away, and what does this mean for current and future investors?

The Benefit of a Bitcoin ETF

While rejecting the most recent proposals, the SEC has acknowledged the value of a potential ETF. Exchange traded funds allow investors a measure of protection in an otherwise loosely regulated landscape in which Bitcoin holders find their own trading outlets and make their own individual trades, absorbing all associated risks. An ETF can be monitored and regulated, and the SEC showed appreciation for this fact in the wording of one of the nine recent rejections:

"The Commission acknowledges that, compared to trading in unregulated bitcoin spot markets, trading a bitcoin-based ETP on a national securities exchange may provide some additional protection to investors, but the Commission must consider this potential benefit in the broader context of whether the proposal meets each of the applicable requirements of the Exchange Act.”

The Reasons Behind the Rejection

All nine recent rejections were based on the same essential reasoning: That the proposed exchanges have not been sufficiently designed to prevent fraud and manipulation.

The SEC has stressed that these rejections are not founded on an evaluation of bitcoin or blockchain’s value as an “innovation or investment”. In other words, the SEC has no complaint regarding cryptocurrency in general, but it can’t support the establishment of an exchange that doesn’t protect users from harm and exploitation.

What’s happening to Bitcoin Investors?

Bitcoin holders who bought into the currency just prior to its recent plunge in value are facing two options; accept their losses and exit the marketplace, or hold onto their coins in the hope that the market will eventually stabilize, a process that would be accelerated by the establishment of a safe and monitored exchange.

The issue is by no means fully settled (as indicated by a dissenting commissioner, who asserts that blocking the path to an ETF harms both investors and innovators). But as the commission reviews future proposals, members will need to weigh the potential dangers against the benefits, as they’ve done in this case.